We are just at the second anniversary of licences being issued for alternative business structures (ABSs). In the first year, about 40 licences were issued, and progress seemed slow. A year later, there are still only two licensing authorities, but there have been roughly another 200 new licences. The licences we expected for Abbey Protection, AIM-listed Quindell, Knights (backed by James Caan), and BT Law have all emerged. Conveyancing Direct (connected to Connells estate agency and Skipton Building Society) and Jordans (the publisher) have gained licences, as has DAS Law (Bristol law firm acquired by the legal expenses insurer, itself part of insurance giant Munich Re).
The rate of ABS adoption is hotting up. Or is it?
A year ago, we were told that there were another 200 applications in the pipeline. And we have had another 200 licences issued in the past twelve months. So it appears to have taken a year just to process the pipeline. There are no indications of how many are in the pipeline at the moment. No doubt some applications will have been withdrawn, and others processed to a licence within the year; but this rate of processing still does not look impressive – especially given that it is supposed to be easier now than it was initially. Nor does it inspire when the timetable for authorisation is supposed to be completed with six months. On that basis, last year’s pipeline should have been processed closer to Easter than Halloween.
Comparing licensing authorities
Of the 233 ABS licences disclosed on the public registers, 84% were granted by the Solicitors Regulation Authority and 16% by the Council for Licensed Conveyancers. There does not appear to be much competition between licensing authorities for applications: most applicants are sticking with the regulator they already know (though interestingly, Kings Court Trust, which is authorised only for probate activities and could have chosen either, applied to the CLC because it was easier to establish a relationship with them).
There are few obvious other differences between the SRA and the CLC, but one did particularly catch my attention. The CLC issues licences that are effective immediately. The SRA, on the other hand, rarely does: in 80% of cases, there is a gap between the issue of an SRA licence and its effective date. It is not clear from the register why this is so, and sometimes the gap is only a day while in other cases it can be a matter of months.
Both regulators have problems with the alphabet, with neither register quite being able to list its ABSs in entirely the correct order (are they both relying on humans for this rather than technology?). The SRA register often annoyingly omits from an ABS’s address the name of the town where the business is registered or practises, which strikes me as a significant omission in a public register.
Finally, I remain exercised by the SRA issuing ABS licences in respect of all five of the reserved activities for which it has authorisation to 96% of applicants. Only 8 of its 195 current licences have fewer than those five. No doubt this is because the applicants wanted the ‘full house’. But given the manifest strategies of the applicants, and the SRA’s much-vaunted approach of ‘risk-based and proportionate’ regulation, I’m still bemused that such a vast proportion of applications justify the full range of authorisation. The CLC’s licences seem to be much more appropriately drawn given the nature of the applicants’ businesses.
Interestingly, the CLC register, in its disclosure of the reserved activity for which most of its ABS licence are issued refers to ‘conveyancing services’. However, conveyancing services is not a reserved activity – it is reserved instrument activities. Misleading the public?
The chosen structure of ABSs shows a clear preference: approaching two-thirds (62%) of licences are issued to limited companies (95% for the CLC), with just shy of 30% to LLPs. Further evidence that the traditional partnership is far less often the structure of choice for legal practice. And, as a demonstration of the structural variety available, one ABS – Castle Park Solicitors – is a community interest company.
In addition to the multiple licences issued to Irwin Mitchell (5) and Schillings (2), there are some other instances of connected ABSs: Ageas Law with NewLaw, FMG Legal and H&R Legal, and Linkfield Claims Service with OC Law and OJM Law. Putting together combinations of ABSs is clearly on the strategic agenda of some, and will further test the SRA’s resolve on the separate business rule.
ABS licence holders appear generally to want to be known by consumers for doing what it says on the tin. The registered ABS names of 63% of licences include Solicitors, Lawyers, Conveyancers, Law, Legal, Legal Services, or Conveyancing. Imagination in business naming is not running wild!
There also appears to be a geographical message from the ABS registers. Just over a fifth (21%) of licences have been issued to businesses in the north west, with Wales also being popular (8%). This predominantly represents the physical location of legal services relating to personal injury and other volume consumer services, but confirms the attraction of the ABS opportunity to these types of business as well as the entrepreneurialism and innovative spirit of those parts of the jurisdiction.
There is a pleasing variety of ABSs now in the market. This ranges from very small firms taking the opportunity to reflect ownership between lawyers and managers, and between lawyers and other family members (very sensible, since such combinations are extremely common in other areas of the economy), to large organisations looking to enter the market. There are equally varied backgrounds to the new entrants, including private equity, retailers, insurance companies, utilities, publishers, and real estate.
But perhaps the most notable conclusion is that a very good proportion of ABS licences have been granted to existing law firms that have wished to take advantage of the new structures – not so much to make a radical step or statement but simply to reflect the reality of their ownership and management, freed from the constraints of the historical restriction to solicitor-only control.
So the stage is set for further innovation and consolidation as we keenly anticipate the developments of year three. Perhaps caution will subside and optimism will win.